$10.10 wins

By Ben Walsh

February 19, 2014

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The CBO estimates that raising the federal minimum wage to $10.10 (a level the President reportedly supports) would increase wages for 16 million Americans, lift 900,000 people out of poverty — and cost the economy 500,000 jobs.

Josh Barro isn’t perturbed by the idea that a higher minimum wage would put some people out of work. If a wage hike isn’t putting someone out of work, he writes, it’s not a big enough. The point is to make sure the positives (wages increased) sufficiently offset the negative (decreased employment): “the minimum wage trade-off presented by CBO looks awfully favorable. For every person put out of work by the minimum wage increase, more than 30 will see rises in income, often on the order of several dollars an hour”.

To Tim Fernholz, what gets lost in the political debate is that economic literature on increased minimum wages suggests that it both fights poverty and reduces the number of low-wage jobs. Mike Konczal has a good review of two recent studies. Both studies attempt to quantify the effect on poverty of a 10% increase in the minimum wage; one finds that it is reduced by 2.4%, while the other sees poverty reduction of 2.9%.

Ezra Klein thinks the CBO’s conclusions are likely right, but not necessarily new. The analysis isn’t really even what the CBO does best, he says, which is analyze the effects of little-studied legislation. Konczal says the report relies on speculation that “goes in a direction that is, to a surprising extent, in tune with Republican ideology… the CBO’s methodology is weighed to overstate the impact of a $10.10 minimum wage on jobs, while also understating the benefits”.

Tyler Cowen thinks the bottom line is that “we should not have a major party promoting, as a centerpiece initiative and for perceived electoral gain, a law that might put half a million vulnerable people out of work, and that during a slow labor market”.

As an alternative, Larry Summers, James Pethokoukis, Dylan Matthews and others have suggested increasing the Earned Income Tax Credit, a federal tax refund for low to moderate income workers. Not that it’s necessarily an either/or proposition: Arindrajit Dube says that “for some people, the presence of EITC acts as a multiplier for a hike in the minimum wage… these two policies may complement each other”.

Meanwhile, some workers are taking matters into their own hands and employing a kind of minimum-wage arbitrage: commuting across state lines from Idaho to Oregon to earn an extra $1.85 an hour. — Ben Walsh